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Morningstar | Centro Norte Begins to Navigate a Post-AMLO World

Grupo Aeroportuario del Centro Norte holds approximately 15% of the Mexican air-passenger market share, and total passengers transported in 2017 increased roughly 5%, to 19.7 million. Although the company operates more airports than competitors within the country, it lags in market share due to a lack of international travelers. Centro Norte serves smaller tourist destinations, but lacks a major hub for vacationers. Its airports serve areas and populations centered around economic activity, including mining, manufacturing, agriculture, and other industrial activities. Due to the lack of international travelers, nonaeronautical revenue comprises a smaller percentage of total revenue than for other Mexican airport operators. Furthermore, operating margins lag those of competitors thanks to a lower percentage of this nonregulated revenue, but the total still came in above 50% during the latest fiscal year. According to Centro Norte's government-granted concession, each airport must adhere to regulated fees charged to customers, and rates are adjusted periodically for inflation. The airport operators must comply with the Master Development Program, or MDP--a plan constructed to lay out maximum rates and required minimum expenditures every five years. Greater connectivity within Mexico bolstered air travel growth over the past two decades. In the past, few direct routes were offered to passengers, as Mexico City served as the central hub and ultimate connector between ports. However, enhanced infrastructure and greater consumer spending power has increased routes throughout Mexico and lessened the dependence on Mexico City. Centro Norte has been able to take advantage of the increased connectivity and has benefited from increased economic development within Mexico.To boost nonaeronautical revenue, Centro Norte has diversified into other commercial activities. The company operates hotels, warehouses, and other complementary services. Nonaeronautical revenue, which is not regulated by the government, has increased consistently over the past seven years, and we believe management will continue seeking additional areas to increase nonregulated revenue.